By Carol D. Leonnig and Alexi Mostrous
Washington Post Staff Writers
Sunday, September 20, 2009
The liberal political organizing group ACORN faced internal chaos and allegations of financial mismanagement and fraud long before two young conservatives embarrassed the group with undercover videos made at field offices in Washington and across the country.
Internal ACORN documents show an organization in turmoil as last year's presidential election approached, with a board torn over how to handle embezzlement by the founder's brother and growing concern that donor money and pension funds had been plundered in the insider scheme.
Minutes from a meeting ACORN held in Los Angeles last summer reveal a group then on the brink of financial collapse. "Currently owe over $800k to IRS," the minutes note. "Haven't paid medical bills of over $300k. We are essentially 'broke' nationally and lots of offices are struggling."
Some top ACORN officials tried to shield the scheme, which involved Dale Rathke, the brother of ACORN founder Wade Rathke. "Leadership has no faith in staff. Wade betrayed them," the minutes said.
The documents present a troubling picture of one of the nation's leading social justice advocacy groups, with more than 400,000 members, offices in 75 cities and an expanding international presence.
ACORN, or Association of Community Organizations for Reform Now, was founded in 1970 and is supported in part by government grants. It has forged relationships with banks, federal and state agencies, and nonprofit groups that have made it a major force in helping low-income families buy homes and in bringing marginalized voters to the polls. The ACORN political action committee endorsed Barack Obama in February 2008.
ACORN said in a statement Saturday that it has taken "decisive action" to correct problems detailed in the documents, which it said were stolen and leaked to investigators for a House oversight committee. Spokesman Brian Kettenring said ACORN has reorganized, severed its connections to Wade Rathke and "been made whole relative to the monies stolen in 1999-2000." He also said that "arrangements have been or are being made to correct all tax delinquencies."
An investigation by Republican members of the House Committee on Oversight and Government Reform also showed that there was concern within ACORN that its voter outreach efforts, which are required to be nonpartisan, were aimed at electing Democratic candidates, a key complaint of conservative critics.
In a June 2008 report to ACORN, Washington lawyer Elizabeth Kingsley, who conducted an independent review of the group's finances, expressed concern that inadequate documentation of money transfers between ACORN and an allied organization, Project Vote, would make it difficult for either group to respond effectively to questions about whether tax-deductible charitable contributions were used for political purposes. She also noted conflicts created when decision-makers at the tax-exempt entity had roles in political activities carried out by other groups.
"My question all along was, are we funding a liberal political agenda with taxpayer dollars without knowing it?" said Rep. Darrell Issa (R-Calif.), who co-sponsored last week's House legislation cutting off ACORN's federal funding and led the oversight committee investigation, whose findings were released in July. "By the end, it was clear to me, this organization can't assure anybody, including itself, that it won't use our money for partisan politics."
Conservative ire over ACORN has been building since the 2008 elections, for which the group mounted voter-registration drives that helped propel the victories of Obama and other Democratic candidates. The Obama campaign paid Citizens Services of New Orleans, a close ally of ACORN, more than $800,000 for get-out-the-vote activities, and the group's political action arm endorsed Obama.
Obama's ties to ACORN date to his days as a community organizer in Chicago. He represented ACORN in a lawsuit in 1994 and conducted two leadership training sessions for ACORN's Chicago chapter in the late 1990s. In 1992, Obama served as director of Project Vote in Chicago, helping to register 150,000 voters on the South Side.
Obama has said previously that ACORN did not advise his presidential campaign. "We don't need ACORN's help," he said in October.
Issa's investigators unearthed e-mails and documents offering details of how the organization reacted to the discovery that Dale Rathke, the former chief financial officer of ACORN, had embezzled $947,000 in 1999 and 2000. Wade Rathke left his post as ACORN's chief organizer in June 2008 after the embezzlement was discovered.
Neither the full ACORN board nor most of its staff members knew about the embezzlement until a donor revealed it in 2008, eight years later. ACORN reached a private settlement with Dale Rathke in which he and his family agreed to repay the money that, according to ACORN documents, he spent on luxury hotels and trips on the Concord. The organization agreed not to turn over the matter to prosecutors. Dale Rathke could not be reached for comment Saturday.
Minutes of an ACORN conference in Washington in August 2008 reflect the group's concern that Wade Rathke kept vital information from the board.
"Wade never fully told anyone on the board," the notes show. "He allowed Dale to continue working for ACORN and despite his assurances to the management committee at the time allowed him to continue being involved with almost all finances."
Under the confidential settlement, the Rathke family agreed to repay ACORN at a rate of $30,000 a year. Wade Rathke could not be reached, but he told the New York Times last year that the organization counted the losses as a loan on financial records, rather than reporting it to police, because word of the embezzlement would have put a "weapon" in the hands of conservative enemies.
Issa said his inquiry found a handful of Wade Rathke loyalists in charge of nearly 200 entities and affiliates with varying status -- some tax-exempt, some political -- but with blurred lines.
"If you weren't interested in merging all your corporate entities to foster one political end, why did you create this structure that would allow you to do just that?" Issa said.
In a statement, ACORN called the committee report not credible and said it was normal for community organizations to maintain separate functions.
Issa said ACORN's financial problems invite questions about its voter-registration efforts. ACORN reported collecting more than 1 million applications from low-income people and minorities in the 2008 election, compared with 500,000 in 2006.
"If we can't trust them in one area, what makes us think we can trust them in another?" he said.
ACORN, which is funded with government money and private donations, works under a variety of affiliates to encourage homeownership and civic involvement among low-income citizens. Its offices in the District and Baltimore were among those targeted in video stings in which a couple posing as a pimp and prostitute received counseling from ACORN workers that might help them evade federal tax laws.
As the videos gained traction online, calls for criminal investigations and an end to funding have intensified. Georgia Gov. Sonny Perdue and Louisiana Gov. Bobby Jindal, both Republicans, have ordered state agencies to cut off ACORN's funding. In California, Republican Gov. Arnold Schwarzenegger called for an investigation, while in New York, Democratic Gov. David A. Paterson imposed a 30-day hold on ACORN's contracts. Elected officials in Rhode Island and Illinois have joined the chorus.
Meanwhile, based on information provided by ACORN, authorities in Miami issued arrest warrants last week for 11 former registration canvassers on allegations that they falsified hundreds of voter-registration cards. In Nevada, ACORN faces a hearing this month, with two former employees accused of illegally paying canvassers to sign up voters.
In Louisiana, where ACORN was based until recently, Attorney General Buddy Caldwell is leading a criminal investigation prompted by the embezzlement case. He said whistleblowers had made allegations of widespread voter fraud by the group.
"We keep getting information," he said. "We don't have many resources, but we're not running out of whistles."
ACORN relies on federal funds for about 10 percent of its $25 million annual budget. ACORN and allied groups have received about $53 million in federal funds since 2004.
Despite a move last week in Congress to block ACORN's funding, Kettenring said cutting off federal support "would have a negligible impact on our core operations."
Research editor Alice Crites contributed to this report.